Question

Santini’s new contract for 2018 indicates the following compensation and benefits:

Benefit Description	Amount
Salary	$	137,500
Health insurance		16,500
Restricted stock grant		4,000
Bonus		6,500
Hawaii trip		5,500
Group-term life insurance		3,100
Parking ($320 per month)		3,840

Santini is 54 years old at the end of 2018. He is single and has no dependents. Assume that the employer matches $1 for $1 for the first $9,000 that the employee contributes to his 401(k) during the year. The restricted stock grant is 500 shares granted when the market price was $6 per share. Assume that the stock vests on December 31, 2018, and that the market price on that date is $45.00 per share. Also assume that Santini is willing to make any elections to reduce equity-based compensation taxes. The Hawaii trip was given to him as the outstanding salesperson for 2017. The group-term life policy gives him $150,000 of coverage. Assume that Santini does not itemize deductions for the year.

Determine Santini's taxable income and income tax liability for 2018. Use Tax rate schedules and Exhibit 12-8. (Round your answers to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

Answer is not complete.

	Description Amount Taxable Benefits Salary $137,500 Restricted stock grant 4,000 Bonus 6,500 Hawaii trip 5,500 Life Insurance (taxable portion) Parking 3,840 ISO AGI $157,340 Standard Deduction 5,700 Taxable Income Income Tax Liability

Answer 1

1. TAXABLE BENEFITS SHALL INCLUDE -

A) HEALTH INSURANCE : $16500 (100% taxable)

B) PARKING : $(320-260)*12= $720

C) BONUS : $6500

D) HAWAII TRIP: $5500

E) EMPLOYER'S CONTRIBUTION TO 401K : $9000

TOTAL : $ 39220

2. SALARY : $ 137500

3. RESTRICTED STOCK GRANT: Not taxable as adjustment shall be made in ISO

4. LIFE INSURANCE TAXABLE PORTION:

Taxable only if coverage exceeds $50000

Taxable portion : $(150000-50000)/1000*0.23*12 = $276

0.23 is age value factor while 12 months is period covered.

5. ISO:

There is no sale in the year 2018 therefore no long term gain arises. However there is increase in price of stock, hence such increase shall be ordinarily taxable. (assuming that no AMT is required for high earning employee)

Amount taxable : $(45-6)*500 = $19500

6. AGI : $196496

7. STANDARD DEDUCTIONS : $ 12000

8. Taxable income : $ 184496

9. Tax liability: $32089.50 + 32%* (184496-157500)= $40728.22